Riding On Momentum

Speculation of a Greece bailout by Germany encourage risk appetite and market will be especially choppy in short time frame(1-2 weeks).

Eventually Greece will be bail out but it likely won't be on the same scale as what everyone are betting on or else it will create rampant irresponsible betting without any risk management as they can rely on Government or IMF to continue to keep bailing out investors and countries which is impossible to sustain in the medium to long term. Hence i believe it will still put a dent in the stock market when details are finalized.

We are nearing CNY and trading volume has lighten up hence lightly market will stay relatively firm in the next 2 days.

It would be good to dissect the mix data today as there are several confusing signals from the data of major economies.

Inflation is rampant in certain parts of the economy mainly commodities and properties side while it is tame in the consumer side due to massive overcapacity in not only China(although it's the most severe over there) but also in other countries. The action taken currently is raising of bank reserve ratio as well as tightening the loan amount however easy money continue to sip into speculation and that would eventually require tightening of interest rate to fight it off but in light of the weak recovery,government worldwide will postpone this decision till things are getting out of hand.

Human sentiment has always been like a rubber band,from 1 extreme to the other and seldom do we stay in the mean of the band. We are overly optimistic right now and that is likely to continue to drive market till 2nd Quarter 2010 arrives as Stimulus effect would have worn off after 2nd Quarter and we can finally get a sense of how the economy is performing WITHOUT MASSIVE SPENDING by Government and it is likely for the sentiment to whip back to the mean or to the lower extreme. More action will be taken to penalize the banks in order to appease the public however doing so will just continue to drag on economic growth and moving forward we are in for building the next bubble with the massive liquidity.

Within this year,STI will likely have to test 2,280 if it is to be a healthy market,failing to do so this year will lead to a greater fallout later on. Market has not always been rational,in fact it is the most irrational beast around however like i said it's a rubber band,if it's stretched too extreme,the resulting effect will be devastating as well.

In short,it is still too early to be long term bullish,however opportunities are abound to making profits.

Ok a short recap of last week to see how we can prepare for this coming week.

To be frank,i have absolutely no idea how market will react tomorrow reason being,data was not good last week but at least it's improving from devastating levels as compared to previously.

There was an increased of 1.4m UNEMPLOYED then previously reported but jobless rate dropped from 10% to 9.7%? This is due to the distorted way of how the unemployment rate is calculated.... and US says China tempered their data? looks like US is the same as well.

Now to the weekend G7 meeting,the major economies Australia INCLUDED has Pledged Continued stimulus spending this year which means more artificial support for equities as well as the demand side of goods. Overall they decide to leave the budget deficit aside and focus on spending the way to Prosperity again. Obviously history shows that it is unlikely to be successful but in the short run,they should give sentiment a boost.

Continued from the Greece Saga,it appears that the bond spread for Portugal and Spain has also widen dramatically which is a real cause of concern and talk of a Weekend Bailout of Greece that lead to the reversal of Dow Jones on Friday did not materialized however there is no doubt that a lot of the market has made a dramatic reversal on high volume which may be a signal of a short term reversal coming. However as the bull/bear signals clashed together,i do not really know how Asia market will react to it come Monday.

Oil has dropped swiftly this week due to continued USD strength as well as the highest stockpile of crude oil in the last 10 years. There is a lack of demand for commodities at the moment as real demand has not come back yet. It is mostly speculative money at work over here which is the reason why commodities did a much deeper drop as compared to the Stock market indices.

Stock Market indices are not cheap at the moment either,we are at the highest valuation in the last 9 years and if earnings disappoint(Every analyst is banking on profit growth of at least 15-20% this year) to bring the Average P/E ratio back to the medium. We are overpriced at the moment,it does not mean we will drop since high GDP growth is still expected for Q1 and Q2. Q3 onwards is an unknown. However what i am saying is that the RISK of going on the long side is definitely high as we are 1) Overpriced 2) Profit need to be growing a hefty amount for current price to be justified. Whether 2) will happen or not is yet another uncertainty.

As shown in 2008,ALL ASSET classes are moving in the same direction and that is the same even for now,hence no matter how you diversify,it will be useless since that cannot sheltered you from losses.

STI stocks dropped across the board on Friday mainly by Gap down and i can't really gauge what will lie in wait for us this week. Stay cautious and remember when there is uncertainty PROPERTY stocks are HIT THE HARDEST but if the danger fades,expect them to rebound the most as well.

If you look at the stocks in STI,you may be able to realize that most stocks are now back in medium term downtrend except for selective oil & gas stocks and commodities stocks however oil plunging to 71 will put a near term pressure on them. So please be selective in your picks. If you are buying stocks that has been sold down a lot. Make sure you buy them near Previous Strong Support Area and Don't Be Too Greedy. Market % movement has shrink of late. Taking a profit for a quick 3% is better than holding it and seeing it sink into the red.